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Last week started with oil falling to below $44 a barrel on Monday as OPEC voted to hold production steady. As the week progressed, prices climbed to a three-month high of nearly $53 after the US announced a plan to fight the recession by having the Federal Reserve purchase US government debt.
Tanker tracker Oil Movements reports that OPEC production continues to decline in March and that by early April the cartel will be very close to completing its announced production cut of 4.2 million b/d. A shipping source reported that crude oil in floating storage still totals some 80 million barrels so that even with lower OPEC production, it may be some weeks before this inventory is worked off and prices start to increase.
The IMF and World Bank continue to forecast that the global economy will slip in 2009. Beijing, however, is still insisting that it will achieve an 8 percent growth rate this year, but nearly all other countries are forecasting an actual economic decline. The question of whether the demand for oil slips more or less than the 4 million barrel production cut is still crucial. Non-OPEC production is forecast to be steady during 2009, leaving the level of demand for crude the key variable for the next few months.
Saudi and OPEC officials continue to issue strong warnings about the damage low oil prices are doing to investment and the prospects for oil supplies in coming years. Saudi Oil Minister Al-Naimi went so far as to warn that “in years to come, if traditional energy supplies should prove inadequate because capital expenditure was curtailed due to unsustainable prices, unreliable indication of future demand or hopes for a substitute that oil cannot deliver, such a supply crunch would be catastrophic.”